'You'd have to be nuts to run an ICO': The age of the ICO is coming to an end, giving way to a new trend in crypto

The market for initial coin offerings is off to a red-hot start this year, but that may soon change.

The cryptocurrency industry is shifting to so-called security token offerings as regulators crack down on ICOs, industry experts say.

Cryptocurrency fundraising is off to a record-breaking start this year, according to new data from the crypto watcher Autonomous Next.

But the rest of 2018 could see the market for initial coin offerings fizzle out, according to numerous cryptocurrency experts who spoke with Business Insider on Tuesday at "Battle of the Cryptos," an industry conference in New York.

Autonomous NEXT Autonomous Next found that $2.6 billion was raised via ICOs in January and February.

In an initial coin offering, a company issues its own digital currency as a way of raising money to build out a new business or product. The ICO market, which is known for its big dreams and fair share of fraud, has come under intense regulatory scrutiny this year. Still, fundraising seemed to weather on.

"Funding continues to accrue to new projects, as well as ongoing ICOs, faster than this time last year, but the increased regulatory attention to the space as well as the choppiness in the price of the large cap crypto coins has delivered a February that is slower than January," Lex Sokolin, a partner at Autonomous Next, said in an email.

In some cases, companies have raised millions of dollars from ICOs. Overstock, the company best known for its e-commerce platform, for instance, has raised more than $100 million from its ICO, which was open only to accredited investors, CEO Patrick Byrne told Business Insider.

The consensus at "Battle of the Cryptos," however, was that the Wild West days of ICOs are over.

"I'm surprised by those numbers," Byrne told Business Insider after a panel, referring to the data provided by Autonomous Next.

"Last year there was an explosion in the space, but the SEC's actions — diving into everything — it's pumping the brakes," he added. "You'd have to be nuts to run an ICO now, unless you're as pure as the new-fallen snow."

Byrne said the industry was moving toward so-called STOs, or security token offerings. An STO represents actual ownership in a business or asset, providing investors access to dividends and governance rights, in certain cases. With an ICO, investors are guaranteed only the future value of a token they purchased (which can go to zero).

"The writing is on the wall for a lot of these guys," Trevor Koverko, the CEO of Polymath, a company building out a platform to help companies launch STOs, told Business Insider. "They know that if they run an ICO and open it up to US investors, they're going to get shut down."

Numerous companies including the Barbados Stock Exchange are preparing to launch an STO on Polymath, Koverko said.

Investors are also losing interest in initial coin offerings, according to Joe DiPasquale, the founder of the crypto fund of funds BitBull Capital. He told Business Insider that cryptocurrency hedge funds, of which there are more than 200, were opting for other strategies in crypto outside the ICO market.

"A lot of LPs are interested in market-neutral strategies such as quantitative and arbitrage," he said.

"Market-directional strategies such as ICO investments are falling out of favor."

Still, crypto markets are unpredictable by nature. Sokolin told Business Insider it was too early for the market to say ICOs had reached their peak.

"But the direction of March," he said, "will be an important indicator."